Is your magic number one million dollars, two million dollars, or five hundred thousand dollars? It really depends on six primary factors. These six factors, depending on how they relate to you, will either mean you have to save more or less to be comfortable in retirement. Let’s go through each of these factors one at a time.

Pension income sources

There still are Canadians who have company pension plans. The best ones are defined benefit pensions. These are the ones where the company guarantees a monthly income to you in retirement for the rest of your life. Defined contribution plans are pretty much just like an RSP. Thing is, not all defined benefit pension plans are as secure as others. There have been lots of examples, Nortel being one of them, where pensioners are not getting what they have been promised.

Nortel pensions will only receive 57.1% of their pension.

Sears Canada might be heading in the same direction.

Canada Pension Plan (CPP) is in much better shape, and old age security benefits (OAS) appears solid for those eligible.

From a retirement savings standpoint, the more pension income you have from all of these sourcesthe less you need to save.

Retirement duration

How long is your retirement phase going to be? Plainly, the earlier you retire and stop having earned income, the more money you are going to need to draw from for the rest of your life. Is your retirement period going to be 20 years, 30 years, longer? The longer it is, the bigger that nest egg needs to be.

Investment rate of return

The growth of your savings matters. The higher the rate of return on your investments, the less you need to accumulate through your retirement saving years. The lower the investment return, the more you are going to have to beef up that retirement nest egg. If only it was possible to know in advance what your returns are going to be. Future returns are unknowable. So be careful to use conservative return assumptions in your planning. Over-estimating future returns will result in under saving pre-retirement increases the risk of outliving your money while in retirement.

Retirement spending

A comfortable retirement means different things to different people. If your style of living in retirement will cost $100,000 dollars a year, you're going to need to save a lot more than someone who is comfortable living on $40,000 dollars a year. Knowing what your future lifestyle spend is going to be is an important thing to consider.

Housing

Are you a homeowner? If so, you have another asset that can support you in retirement, perhaps in your later years, once you have spent through your savings. If there are no other assets for you to fall back on, your financial nest egg will need to be larger than someone who has that real estate. A property will help you to the degree that is not mortgaged. The value of the real estate is only the equity in it.

Legacy

An estate legacy can be money and/or assets left for your children, other people who are important to you, and charity falls into that category as well. If you have a magic number in your mind that represents the legacy that you want to leave behind, those are assets you will not use during your lifetime. The bigger your desired legacy, the larger the required nest egg.

Make sure that you and your financial planner take all of these factors into consideration when determining your magic number!

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Then I ask which one they’re concerned about, and what they’re basing that determination on.

They say: Well, that’s what the statement says. That’s what I’m looking at!

But statements can be misleading. Let me explain why.

We’ll begin with industry jargon

Let’s first deal with some industry jargon. You may have heard of adjusted cost of your investment, or something called book value. These two terms mean the same thing.

Market value is what your investment is worth today. It is not the same as book value and/or cost.

What typically happens in these cases is that an investor is comparing their adjusted cost to market value, as reported on their statement. They look at the difference between those two, and say that that is the performance they are generating.

In other words, they’re thinking market value, less my book value, is my percentage return.

But! Book value, and what’s called net invested – essentially the money you put in – are not the same thing.

Your percentage return is what you put in, versus your market value.

A deeper look at book value

Let’s figure it out – what is book value? If it isn’t what you invested, then what is it?

This is important because book value, and adjusted cost base, are reported on your statement. Plus market value.

So where is your net invested?

It usually doesn’t show up at all!

Then what is book value all about? Book value, or adjusted cost base, equals net invested plus income distributions. Let’s talk about those income distributions!

Income distributions change everything

The investment that you bought, say a mutual fund, owns a number of types of investments. Those investments generate interest if they’re bonds. They might pay dividend income, if they’re stocks, and if sold at a profit they will generate capital gains. If you own that investment in a taxable account? The CRA says: Give me my tax money.

This income will have to be reported and will show up on one of those lovely T-slips at the end of the year even if you reinvested the income rather than took it in cash. But you don’t want to pay tax on that return twice!

So let’s assume the investment unit value that you bought was $10 per share, and you got an income distribution of $1 per share. If at the end of the year the unit value was $11 dollars per share, you reinvested that $1 – you didn’t take it out. You’re going to pay tax on that $1. So your book value is now your net invested plus this one dollar of income. Now your book value is 11 dollars. It’s not what you originally invested! It’s what you invested plus any income distributions.

Tax implications

Now, one day you might sell this investment.

You invested at 10 dollars, you got a 1 dollar income distribution on which you paid tax, it’s worth 11 dollars and you sell it. You’ve made 10 percent! Pretty good!

But you shouldn’t be made to pay tax on that $1 again, so the CRA calculates your capital gain on this investment as the market value minus the book value, which was 10 dollars plus your income distribution: $11. So you have zero capital gain. Hooray!

Bet you never thought you’d be happy about not having a capital gain on an investment! But you should be happy – you don’t want to pay tax on this income twice.

RRSP and TFSA statements

The next question I hear is: Why does this get reported on my RRSP or TFSA statement, when taxes don’t come into play? The distributions are not taxable.

The fact is, financial institutions usually use one system to report all account information. What’s useful for a tax account may not be as useful for a tax-free account but everything gets reported the same way.

Moral of the story

The next time you’re thinking of judging the quality of your investment return by comparing cost base to market value? Don’t do it – you’ll be missing part of the puzzle!

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc.assumes no responsibility or liability.

"If you can get your hands on a directory of doctors, you'll be made." Believe it or not, this was part of my training as a rookie financial adviser over 20 years ago when cold-calling, door-knocking and investment seminars were the primary methods of finding new clients. The pressure to bring in new assets was intense, so focusing prospecting efforts on the perceived wealthy was an obvious route.

If you are a high income earning doctor, lawyer, C-suite executive or successful business owner, you probably know that you are a target, not just of the financial services industry, but of others as well.

The method of getting your attention and creating doubt about your current service providers may have changed over the years, but you are still more heavily prospected than almost any other demographic.

A quick Internet search on prospecting doctors generated the following gems:

"Power Prospecting - Get in front of Physician Prospects in 28 days!"

From a Canadian industry magazine, on why one adviser prospects younger doctors: "It's better to catch them before they have their own lawyers and accountants. A physician in her 50s, for instance, probably has a solid relationship with an adivser, and she'll only move if something market- or service-related breaks that relationship.":

"7 Ways to Prospect Doctors"

In a list of the top six niches financial advisors should target, "occupations" is number two, and the author specifically recommends doctors and lawyers.

Extra Vigilance

OK, so I've hopefully made the case that you are a hot commodity, So why does it matter?

I think it means that you need to be extra vigilant when being approached by someone from the financial industry (even if that person was me!). Anectdotally, highly taxed professionals are generalized as being particularly vulnerable to pitches of "creative" tax reduction schemes and products exclusive to the "high net worth" individual. Appeal to their ego, I've been told many times. Show them something not widely available to get their attention.

Sigh. I'm sorry to tell you that extra vigilance takes energy. But it takes a lot more energy to unwind a strategy or relationship that wasn't well-suited to begin with.

What does vigilance look like?

Do not respond to product-only pitches. This is the sign of a salesperson, not an adviser.

If you meet with an adviser and their product idea is compelling, run it past trusted sources such as your accountant, lawyer and financial planner, if you have one.

Seek advice from independent sources not recommending proprietary solutions. These solutions may not be in your best interest and are rather a way for salespeople to maximize their income and the financial institution's profit margins.

Trust your gut. If it seems too good to be true, or just doesn't feel right, avoid it.

Process not product

Now, here is why I happen to enjoy working with physicians, lawyers, corporate executives and business owners.

They're busy. They're tired. They just want to spend more time with their family. They want to know that one day, all the hard work will pay off with some degree of financial security. Frankly, everyone wants these things.

It's important for you to know that the panacea is not a product. It is a process. A journey, not unlike the one that you take with your customers, patients, employees and corporate stakeholders.

The essence of the process looks like this:

Understand your uniqueness and history.

Flesh out how you define financial health/success.

Develop a well thought out, evidence-based plan to get you there.

Support and encourage you on your journey.

Repeat annually, more frequently as necessary, forever.

So really, for some of us in the industry, we're not that different from you. Apply the vigilance I recommend to finding these kindred spirits. You'll be wealthier as a result.

Replublished from The Medical Post - with permission

Rona Birenbaum is a certified financial planner and ounder of Caring for Clients. This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc.assumes no responsibility or liability.

Many Canadian seniors will be surprised when their RRIF payments decline by as much as 28% in 2016. Seniors age 82-and-under will see a decrease of at least 20%*

Seniors that chose to receive the RRIF minimum payment will be most affected. That minimum is determined by the market value of your plan assets as of the previous December 31st, multiplied by the CRA age factor. But in the 2015 Federal budget, the RRIF minimum factor was significantly reduced (see table below). And if your amount withdrawn exceeded your plan growth in 2015, your pay cut will be even deeper.

You're a senior and your financial advisor has not spoken with you about this? Here are a few suggestions:

Up to now, if the minimum has been more than you needed, you might have manually or or automatically moved the excess to a TFSA or other account. Consider adjusting that amount downward, or outright cancelling it when your RRIF payments decline next year.

If the minimum has been less than you needed, you may have been withdrawing additional funds from a TFSA or non-reigstered account. If those withdrawals were automated, you may want to increase the withdrawal amount to offset your reduction in RRIF income.

You may have a one-time opportunity to re-deposit an excess amount to your RRIF to reduce your 2015 tax burden. The deadline is February 29, 2016.

Today's longer lifespans are the reason for the change in the RRIF tables. The federal government's concern (the concern of every senior and their advisor) is that the existing formula forced seniors to deplete their RRIFs too aggressively, and risk running out of money prematurely.

Let's say you're a Canadian senior. Now is a particularly good time to re-assess whether your portfolio withdrawals (irrespective of the changing RRIF rules) are sustainable, keeping in mind ever-increasing life expectancy. And don't be shy about reaching out on this tricky issue - it's mission-critical!

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

A new client recently said, “My relationship with money is changing. I didn’t think it would happen so quickly”.

We all have a relationship with money. It guides our decisions and can define how we experience life. Do you see yourself in these four money personality categories?

The Ostrich

The ostrich doesn’t want to know what their financial position is or whether they should adjust their money management approach to ensure a more secure future. So it’s a crap shoot whether or not their current lifestyle is more frugal than necessary or over the top irresponsible. The future will come when it does and they hope for the best.

Hope is not a strategy for success and building financial awareness is usually empowering rather than painful. The ostriches that we meet are often happily surprised that they have a brighter financial future than they thought and are emboldened by the knowledge that they have the power to change the direction of their life if they so choose.

The Spendthrift

The spendthrift has a hard time saving money and/or paying down debt. They have a hard time answering the question, “how much money do you spend each year?” Money is often a tool used to smooth the rough edges of life, whether by using shopping as a leisure activity or overspending on conveniences to avoid the perceived drudgery of home maintenance or cooking. The spendthrift often wants to enjoy a lifestyle beyond their means and asks the question, “how come my friends can go on fancy vacations, own luxury vehicles and basically spend freely but I have to stretch to do the same? What’s the point of saving for retirement if I never get there? Just look at all the people who die in their 50’s and 60’s!”

If you see yourself in this description it’s time for a gut check. Spending feels good but being in control of your finances feels even better.

The Hoarder

The hoarder has difficulty spending money and as a result is a great saver and works hard to eliminate debt. Saving and reducing debt is smart money management, however, if it comes at the expense of experiencing life fully and/or creates stress in a relationship, it’s a problem. Hoarding behavior is usually driven by fear. Fear of not having enough in retirement and fear of job loss are two examples. People hold onto money like they would a teddy bear, because it makes them feel more secure in an uncertain world.

Taken too far, this way of being keeps one's world small. It’s true that money can’t buy happiness, but it can help you experience the world more fully. Whether used to visit art galleries or the theatre, or to travel the world, it’s true that we only live once. Spending responsibly doesn’t have to compromise sound financial management.

The Engineer

The Engineer knows how their money is spent. They often keep track of their spending, investing, and debt reduction progress on a spreadsheet. Analytical about most things they naturally do a cost/benefit analysis of expenditures, which can take some of the romance out of life's adventure but overall tends to lead to well-balanced financial decisions. Stress can arise when the engineer marries any of the categories above and can’t relate to the emotional connections that their partner has with money.

Understanding your money personality can help you establish a more balanced relationship with money.

This information is general in nature and is not intended to constitute specific financial advice for any individual. It is best to speak to your financial professionals (or us!) for specific advice.

Canadians are starting to take off the rose coloured glasses and see the banks for what they truly are; businesses designed to generate profits for shareholders. Loyalty doesn’t mean what it used to and here is a case in point to prove it.

Customer loyalty to one’s bank of choice has historically been very Canadian. We love our banks. “This is my bank; surely they’ll return the love.”

Canadians are starting to take off the rose coloured glasses and see the banks for what they truly are; businesses designed to generate profits for shareholders. Loyalty doesn’t mean what it used to and here is a case in point to prove it.

It is a common occurrence in my work as an independent mortgage broker agent that a client provides me with the mortgage renewal offer they got from their bank. A recent client of mine was offered Prime rate minus 0.55% on the renewal for a 5-year closed, variable term mortgage. The exact same bank, at the exact same time offers me Prime minus 0.65% for clients. My client has great income, great credit, always made timely payments, and should have been given the better offer as an existing customer.

Why don’t the banks offer their existing customers the best possible rate? They understand the principle of inertia. Inertia is that physics law that you learned in high school. You know, the principle that all physical objects are resistant to any change in its state of motion. Your bank, relies on the fact that most customers do not shop around at renewal time because they are either too busy, too loyal, or naïve enough to think that they will be offered the best possible rate and mortgage terms.

So what should you do? If you’ve never consulted with a mortgage broker or agent then you should give it serious consideration. A broker/agent will only give you upside on your financing solution. There is no cost to the borrower because brokers are paid by the eventual lender.

It’s best to contact a reputable mortgage broker at least 6-months prior to the renewal date. This gives the broker time to understand your needs and unique circumstances, do their research and educate you on your options. They can obtain rate guarantees well in advance of the renewal date that will come in handy when interest rates inevitably rise.

About the Author:

Ian Mucignat is a mortgage agent at TMG The Mortgage Group. He is an industry expert having served in variety of roles at Canadian schedule I banks and lenders for 14 years, including his last role of Vice President. Ian completed his Chartered Financial Analyst designation and his Bachelor of Business Administration, with a minor in Economics, at Wilfrid Laurier University.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained herein.

April 2015

We are often asked whether it makes more sense to apply extra cash flow to a mortgage or to retirement savings. This question is coming up more often these days given the low borrowing rates and recent great returns in the stock market.

We are often asked the question whether it makes more sense to make extra mortgage payments or top of retirement savings when there is extra cash flow. This question is coming up more often these days given the low borrowing rates and recent great returns in the stock market.

Our view is driven by the reality that the more principal you pay now when mortgage rates are low, the stronger a financial position you will be in when mortgage rates do increase. Rates don't have to increase much to magnify the amount of interest that you pay over the life of the mortgage so the smaller you can get it before that happens, the better.

Making a mortgage prepayment gets you a guaranteed, tax free return that usually exceeds the after tax return of guaranteed investments like GICs.

The exception we make to this general advice is if you have unused RRSP room and are in a high tax bracket. In that scenario, we usually recommend RRSP top up and subsequent allocation of tax savings to the mortgage.

The other caveat is that once the money is paid into the mortgage, you may not be able to borrow it back. So make sure that you have access to emergency cash such as an unused line of credit or TFSA account investments.

Finally, if you have investments in a non-registered account, your TFSAs are maximized and you have a mortgage approaching renewal, you may want to consider using your non-registered funds to pay down the mortgage at renewal and then borrow back the same amount to replace your investments. Doing so can convert the interest paid on that portion of the debt from non-tax deductible to fully tax deductible. There may be costs and capital gains taxes associated with this strategy, so make sure that the future tax savings of the strategy more than compensate for the structuring expenses.

This information is general in nature and is not intended to constitute specific tax or financial advice for any individual. It is best to speak to your tax and financial professionals (or us!) for specific advice.

Most retirees have several sources of retirement income. The largest contributor to this income is typically a portfolio of investments. Retirees spend decades savings for the future and trying to maximize returns to build the largest possible nest egg. When investors shift from the accumulation phase (saving for the future) to the decumulation phase (spending the nest egg) different investment objectives emerge.

The number one worry becomes, “will I outlive my money”? Secondary, but no less important concerns are how to reduce income tax and how to generate steady, guaranteed returns. Risk tolerance plummets in the decumulation phase of an investor’s life.

The insured annuity concept addresses all of these considerations. The strategy maximizes after-tax income from non-registered savings and preserves capital for heirs and/or charitable bequests. An insured annuity involves the purchase of two contracts from insurance companies, a life annuity and a life insurance policy. The objective is to provide a better return on investment than traditional, conservative, taxable fixed income investments like GICs. Additional benefits can include creditor protection and avoidance of probate fees that come with life insurance products that name the appropriate beneficiaries.

Here is how it works

A specified amount of non-registered savings is used to purchase a prescribed life annuity. The annuity pays a regular stream of tax efficient income for the life of the investor. A portion of that income stream is used to purchase a life insurance policy that is paid to the estate (or named beneficiary) upon the passing of the investor. The end result is higher retirement cash flow than alternative fixed-income investments while still leaving an estate for heirs.

The preferred tax treatment of prescribed annuities and the tax free nature of life insurance death benefits drive the higher after tax returns. Payments from prescribed annuities are considered a combination of interest and capital, therefore, only a portion of the income is taxable.

There are risks to consider though

An insured annuity is a strategy that cannot be undone with the exception of cancelling the life insurance.As such, it is prudent for a retiree to have other sources of capital that they can draw on in the event of an emergency or change of circumstances that requires a lump sum withdrawal of assets.Annuities are like pensions in that you cannot request more than the monthly guaranteed income that the contract guarantees.

Returns on alternative guaranteed investments may increase.If interest rates on GICs increased dramatically in the relatively near future, the relative advantage of the insured annuity begins to erode from a financial standpoint.The advantages of simplicity and tax efficiency remain however.

Poor health – You must be in sufficiently good health to obtain the life insurance.Before committing to the annuity purchase, it makes sense to apply for the life insurance first and ensure that the policy is approved at the expected premium level.

Both the annuity and life insurance contracts should be purchased from different insurance companies.If purchased from the same insurer, CRA could consider them “one contract” and that would have negative tax implications.

In summary

The insured annuity strategy is not well understood and consequently underutilized. Speak with us or your financial planner to assess if it makes sense for you.

This information is general in nature and is not intended to constitute specific financial or tax advice for any individual. It is best to speak to your tax professionals for specific advice. Photo source

These days many Canadians are accepting career opportunities that take them to the United States for a number of years during which they accumulate assets in a U.S. retirement savings plan. Upon returning to Canada, it is possible to transfer the US retirement plan assets into a Canadian RRSP, in most cases on a tax-deferred basis.

To ensure that the transfer does not affect your RRSP contribution room, three conditions must be met. These conditions are set out in subparagraph 60(j)(i) or 60(j)(ii) of the Income Tax Act.

• The payments made to the U.S. plan must have been in respect of employment services you, your spouse or common-law partner, or former spouse or common-law partner; rendered while not resident in Canada

• You are a Canadian resident taxpayer and a non-U.S. citizen at the time you collapse your U.S. plan and contribute the proceeds to your Canadian RRSP.

• The transfer must be done as a lump sum and not as periodic payments.

If all three conditions are met, the transfer process has three steps.

Step One – Contact the U.S. plan provider to request the documentation needed to collapse the plan. Complete the paperwork requesting a lump sum withdrawal.

Step Two – A cheque in U.S. dollars will usually be mailed directly to you. Convert the funds to Canadian dollars prior to making the contribution to your Canadian RRSP. The contribution must be made to your RRSP within the calandar year in which you collapse your U.S. plan, or no later than 60 days after year end.

Withholding tax considerations:

U.S, withholding tax may apply to the transfer. If it does, under the Canada-U.S. tax treaty, the withholding tax should be 15%. The foreign tax credit will generally be available in Canada to reduce possible double taxation.

If you are under age 59 1/2 when effecting a transfer, check with the plan sponsor in the U.S. to see if a 10% early withdrawal penalty will apply. If you are assessed the 10% penalty you can claim the amount paid as a foreign tax credit on your Canadian income tax return.

Your tax return

In addition to the T1 General tax return, these forms will also be required:

January 2012

Q: I am turning 60 next year. Should I apply for CPP now or wait until I am 65?

A: It sounds like you realize that electing to receive CPP prior to age 65 means that your monthly pension will be less than if you waited until age 65 to apply.

There is no simple answer to this question, which explains why you may have received conflicting advice.

Here is what you need to know to make a decision that is right for you.
The most recent changes to the CPP were designed so that if you live an average lifespan, there is no advantage or disadvantage to taking benefits early. There are some situations where taking CPP early or later make really good sense. Perhaps you fall into one of these categories:

Early CPP situation #1

You need the money – If have a cash flow deficit that early CPP benefits will cover, it makes sense to take it rather than build debt.

Early CPP situation #2

You are in poor health – If you expect a shortened life expectancy either because you have health issues or because your family history is one of shorter life spans, taking early CPP is a good bet.

Early CPP situation #3

You spent a number of years out of the workforce - Your pension amount depends on averaging your contributions and “pensionable earnings” from age 18 until you start taking CPP. You’re allowed to drop 15% of your lowest-earning years from the calculation, which amounts to seven years if you retire at 65. If you took time off work to raise kids or because you had a serious disability, you get to drop even more of your low-earning years. The thing is, it’s easy to use up all your drop-out years if you spent a long time getting an education or just “finding yourself.” If you then stop working in your early 60s and don’t take CPP right away, you’ll immediately start adding more years of zero earnings to the calculation. This will lower your average pensionable earnings, which in turn will make your benefit go down. Under these circumstances, you’re clearly better off starting CPP early.

Later CPP situation #1

You expect to live a very long time – If longevity is in your family history, delaying CPP until at least age 65 means that you will have a larger pension for a long period of time.

Later CPP situation #2

You are still working – You can now begin receiving CPP benefits, and grow the benefit through continued contributions while you are working. That being said, you will possibly pay a higher rate of tax on CPP income while you are working than if you delayed receiving benefits until you retire.

As you can see, there is no simple answer to this question. Hopefully this outline will help you determine which approach is right for you.